Lenders to repay interest and late payment penalties to 500,000 after action
by Office of Fair Trading

Almost half a million credit card holders and other borrowers are to receive refunds of penalty charges averaging £300 after lenders failed to spell out their terms and conditions properly.

Seventeen banks and building societies have agreed to repay a total of about £149m in interest and charges to around 497,000 customers following action by the Office of Fair Trading (OFT).

The interest and charges were paid on products such as store cards, credit cards, loans and hire purchase agreements. The regulator declined to name the lenders involved but a spokesman said they included “household names”.

The money is to be repaid because the lenders did not provide customers with some of the “post-contractual” information about their credit agreements as required by the Consumer Credit Act, the OFT said. For example, many failed to provide the wording required by law in statements and arrears notices.

Under the Act, a lender is not entitled to recover interest or default charges for any period during which it failed to comply with certain aspects of the law.

For example, the Act requires lenders to send a notice to the borrower when they fall into arrears by more than two payments to alert them to that fact and the potential consequence of falling into arrears.

A lender that fails to send such a notice is not entitled to enforce the agreement if the breach of the terms continues and the borrower is not liable to pay interest or penalties while the lender fails to comply with the Act’s requirements. In November last year the OFT wrote to 50 banks and building societies asking them to confirm that they had fully complied with the requirements.

David Fisher, an OFT director, said: “These issues were not deliberate misconduct, but the institutions concerned should have ensured they were complying with the law. The OFT welcomes the proactive steps taken to return money to customers where it was incorrectly charged.”

The refunds follow similar moves by Barclays, which repaid £100m to customers last year, and Northern Rock, which refunded £270m.

Customers do not need to take any action now and should be contacted directly by their bank or building society if they are due a refund.